Microsoft Xbox 360 Future Strategy - TCS Viewpoint

Transcription

1 Microsoft Xbox 360 Future Strategy - TCS Viewpoint The given white paper highlights the understanding of the strategy and vision of Microsoft behind its Xbox 360, right from how it fits into the changing industry trends to its ability in cutting down its manufacturing costs and the importance of its Live Gaming Platform to the future of the gaming industry. It also talks about its ecosystem and the major players in it. It investigates into the possibilities of an organization like TCS in helping Microsoft visualize its goal in relation to the Xbox 360 right from providing consultancy services to managing the complete IT systems of its Live Platform at places where TCS has a strong presence and leveraging benefits of other companies of the Tata Group on the whole.

2 About the Author Puneet Lahoty Hi Tech Practice 1

3 Table of Contents 1. Xbox 360 Vision 3 2. Gaming Industry Scenario 3 3. The Xbox 360 Launch 5 4. Xbox 360 s answer to the changing industry trend 5 5. Selection Process of its Key Suppliers 6 6. Understanding the Xbox 360 Ecosystem 7 7. Getting Developers and Publishers their way 9 8. Xbox Live as their Differentiator 9 9. Microsoft Positioned for Success TCS Recommendations TCS Role 11 2

4 Xbox 360 Vision Microsoft s Xbox 360, the ultimate social magnet stands out as a striking piece of its console gaming offering. It aims at tapping everything around it in the digital living room, giving it a 360 degree view having a richly personalized social experience with the gamer being at the center. While the console would exploit all the opportunities in the world of digital entertainment, gaming would outperform any other functions that the Xbox 360 has to offer. The gamers would be at the center and they would have the opportunity to personalize their console to suit their preferences. The business model in the words of J Allard, VP Microsoft is one that assumes that you get a lot of things attached to each console and you make a little bit of money on everything attached every peripheral, every accessory, every game, online subscriptions. The video game industry as such operates on the razor and razor blade model; with having lost money on the razors you make the money through the blades and in this analogy we relate the console to the razor and the games to the blades. Gaming Industry Scenario The figure below depicts the trend of the gaming industry over a general five year cycle. It follows a cyclic model in which it experiences a crest and a trough every five years on an average Cyclic behavior of the Gaming Industry Industry size per year This graph shows the cyclic behavior of the gaming industry, with alternate crest and troughs over an approxiamte cycle period of five years Year Yearly Industry Size 2 per. Mov. Avg. (Yearly Industry Size) 3

5 It takes around a year and a half for the market to completely adopt the new generation consoles, after which for a period of about two years the sales gain real momentum and is when the crest of the cycle is experienced. The sales then start to dip, as the market prepares itself for the next generation consoles and games to be launched. The industry did experience a crest in the year 2004 and it is expected to experience the same around Microsoft launched its Xbox 360, four years after the launch of its Xbox game console. In a way it did deviate from the five year cycle trend in order to gain a first movers advantage over its rivals even at the cost of the lost of sales for its Xbox for a year. The share of online gaming in the overall gaming market is expected to rise and it is good news for Microsoft as they have a very strong software infrastructure as compared to its competitors. The figure below shows the sales of the Xbox 360 from Q Q Yearly Sales Trend Sales of Xbox360 in millions Q Q Q Q Q Sales trend Quarterly break up The given figure showcases another interesting trend of sales of game consoles within a year. The peak is generally seen in the fourth quarter, which is considered a holiday season worldwide. There is a considerable spike in sales in the holiday season, with the sales during the rest of year being more or less at the same level. 4

6 The Xbox 360 Launch Robbie Bach, Chief Xbox officer did strategize the launch of Xbox 360 on the basis of the early rush. He wanted to deliver a knockout blow, in order to gain a significant first movers advantage over its opponents. Even in terms of technology he thought that a 2005 launch would be ideal timing. With the advent of high-definition televisions, the sales of Microsoft s new Xbox360 would be spurred and they would cash on this opportunity by distinguishing themselves with new generation of games. Instead of unveiling its new hardware first to partners and developers behind closed doors, industry players and analysts and then in a couple of months to consumers, Microsoft broke this golden rule and took its offering directly to the consumers- despite it being at least six months until the console was shipped, thus putting more pressure on Sony and Nintendo to get their products into the market quickly. Now video game consoles typically have a five-year life cycle taking from the early adopting stage through the mass market and into obsolescence, however at the time Xbox 360 hit the shores, the original machine was out in the market for only four years and it decided not to wait for another year to launch its product to gain the first movers advantage, even if it meant loss of sales for its existing console. Microsoft believed in gaining from what it called thought leadership where it dominated the industry chatter if not the market itself. Occasional press quotes from Bill Gates, leaked images, and viral messaging spread via Microsoft s ourcolony.net site helped in building the much needed hype amongst the community of gamers. Xbox 360 s answer to the changing industry trend Packed with a 20GB hard drive, high-definition game support, a 500MHz ATI graphics processor, a customized triple core CPU from IBM with the cores running at 3.2 GHz each and 512 MB of GDDR3 RAM it is powered to provide an all new gaming experience. With the high-definition TV sets starting to become mainstream, the Xbox 360 with its dedicated graphics processing unit can take full advantage to provide better graphics in games. The perception of people towards gaming has to be changed, from a world only for hard core gamers; it has to be accepted as a place for all. The games need not only have better graphics but more intuitive game play, an inclusive, supporting community. To achieve this social change on a meaningful scale, video games have to be used as a medium, to cater to the demands across all factions of society. Video games are a medium capable of a depicting various kinds of expressions and this change of perception amongst the world would go a long way in helping Microsoft achieve its aim of driving as high as 1 billion consumers into the gaming mainstream. Entertainment Software Association (ESA) claims that in 2005, 43% of all gamers were females. This is an interesting shift in trend of the way the gaming industry is perceived and Microsoft has its strategy in place to cash on. Acknowledging the importance of a diverse set of games, the hardware console functionalities should not be undermined. The Xbox 360 has provided links to broad band via it s built in Ethernet, wireless support, built in Windows Media connect and Media Center Extender and large storage capabilities, the Xbox 360 is all set to leverage the PC s of Windows based users as the media hub. The concept of creation of the media hub would thus help in creation of a pervasive and diverse presence for the gaming world. 5

7 Selection Process of its Key Suppliers The microprocessor for the CPU is extremely complex and one of the most expensive components of the system which was not easy to build. IBM had a lead in manufacturing process technology and it was in the process of licensing the technology to Chartered Semiconductor, a Singapore based contract manufacturer. Microsoft decided to use a special processing technique called Silicon on Insulator (SOI) for its microprocessor, which would give its CPU power consumption advantages. Microsoft pushed IBM to license this technology to Chartered as well so that Chartered could serve as a second source for the Xenon chips. When it came to comparing the capabilities of IBM and Intel, IBM offered a very powerful PowerPC core which was small and efficient. It was also the only one that had the capability to offer three cores in one CPU all of that with a small form factor, an integrated memory, low power and importantly at a low cost. The issue at hand was that with IBM also making Sony s next generation console s chip, the secrecy had to maintained and the factions in IBM catering to the manufacturing of these chips needed to be discrete. Microsoft trusted IBM for the maintenance of the secrecy and with IBM also providing the required security of its chip against hackers. It was finalized to have IBM make the chip. Microsoft needed silicon partners that understood the economics of its business. With ATI exactly knowing that Microsoft wanted to highlight high-definition gaming and launch in the fall of 2005 at the price of $300. In order to lower the costs, Microsoft wanted to cut out ATI as a middleman, restricting them at the design stage itself and allowing them to take the chip directly to the contract manufacturers. ATI was prepared to let Microsoft own the design that would be created by them, giving Microsoft the option of getting it fabricated in a factory of its choosing. It was difficult for Nvidia to compete with ATI on this front and to add to that ATI s Santa Clara team had done such a deal with Nintendo already, receiving a fee for the design engineering work and a royalty on every console sold. So it was finalized to have ATI design the north-bridge chip for the Xbox 360 and the fabrication process was finalized to be done at Taiwan Semiconductor Manufacturing Co. and Japan s NEC would make the dedicated memory for the GPU which was to be embedded into the graphics chip. Microsoft contracted Silicon Integrated Systems (SiS), an affiliate of silicon-foundry supplier United Microelectronics Corp. (UMC), to design south-bridge chip for its Xbox 360 game machines The console features 512 MiB of 700 megahertz GDDR3 RAM on a 128-bit bus. The memory is shared by the CPU and the GPU via the unified memory architecture. This memory is produced by either Samsung or Qimonda.The original production DVD drives were manufactured by both LG and Toshiba. Beginning in November 2006, both models were replaced by the BenQ VAD6038, which is said to run faster than the previous models and is much quieter in addition Flextronics, Wistron and Celestica are the contract manufacturers for the Xbox 360. DHL was the answer to Microsoft s logistics navigation problems, with the two re-uniting to plot the logistics strategy for the Xbox

8 Understanding the Xbox 360 Ecosystem The figure below depicts the key players in the food chain and where do they play a role in the overall picture of the creation of the product. It has designed the north bridge chip of the GPU ATI It has made the dedicated memory of the GPU NEC It is where the chip designed by ATI is manufactured Taiwan Semiconducter The hardware is manufactured at various manufacturers such as Flextronics, Selestica, Wistron Contract Manufacturers IBM has developed the CPU called Xenon IBM IBM has licensd its technology to it, thereby it acts as a second source for the production of Xenon chips. Chartered Semiconductor It has made the south bridge chip of the GPU SIS GPU Components It makes the common memory for the CPU and the GPU Samsung Contract Manufacturers such as Flextronics, Celestica, Wistron CPU Components It makes the DVD Drive for Xbox360. Benq Shared Memory DVD Drive XBOX 360 CONSOLE SUPPLY CHAIN MANAGED BY DHL 7

9 The software engineer who develops computer/ video games or any related software. The person who designs the operation of games, creative brain behind its development. The one who creates levels, missions for the games using a specific set of programs Game Programmer Game Designer Level Designer The person in charge of overseeing the development of the complete game The one that develops the visual aspect of the game The one who provides quality control, testing the correct functioning of the game. Game Producer Game Artist Game Tester Players involved in game development As shown in the figures above, the hardware component which is to be manufactured goes through several phases. Right from the manufacturing of the Xenon chip by IBM and Chartered Semiconductor to the GPU assembly made at various places. The shared memory manufactured by Samsung and the DVD-ROM Drive by BenQ, the final product coming out from the contract manufacturers such as Flextronics, Celestica and Wistron. The game development players are mentioned in the figure above. In addition the cyclic behavior of the gaming industry impacts the functioning pattern of the players in the food chain. With the clear flow diagram, the required bit of planning done is to ensure delivery at optimum times. It has to be made sure that during the crest period of the industry growth, required number of consoles and the best developed games have to be made available. The distribution cycles to the planning of the production has to be hence synchornised in such a way that the sales can be optimized. 8

10 Getting Developers and Publishers their way To churn out the game development talent, Microsoft has tapped in on various avenues including summits such as DICE and conferences of game developers. Acquisitions of firms like Rare, and alliances with companies like Epic Records, Bizarre Creations, BioWare, 4Kids Entertainment is where some of the games are being developed. It is evident that Microsoft has no way of beating its competitors by spending less than they do on games and developers. The established brand name of Sony and its huge console sales were natural draws to the most talented game developers and their publishers. Microsoft claimed that it had better technology to help game developers express themselves through creative games. Microsoft based XNA, a powerful next generation software development platform played an important role in acting as a catalyst to attract game developers its way. It empowers developers to deliver breakthrough games while combating rising production costs and ever increasing hardware complexity. The XNA ecosystem integrates new and existing tools and technologies from Microsoft and its partners so that developers can make better games faster. To quote Bill Gates, founder and chief software architect of Microsoft, Software will be the single most important force in digital entertainment over the next decade and XNA underscores Microsoft s commitment to the game industry and our desire to work with partners to take the industry to the next level. Thus the innovation of such a platform helps in a great manner to attract game developers its way and thus works in alignment to Microsoft s goal at hand. In addition, the Xbox Live Marketplace offers developers an easier path to counter the increased costs of development of next-generation games. Now this serves as an alternative environment to offer enhancements such as game skins, customized weapons and various other accessories. What it does is it gives the game developers an option to increase the price of the games on the whole by providing other accessories. They could hence find a way out of rising game development costs. The Xbox Live portal also offers game developers a place to test new games before incurring significant costs by publishing trailers or playable demos. The publishers can hence find a key partner in Microsoft to help make their new titles profitable. Xbox Live as their Differentiator With Xbox 360 being a hardware platform, it really is a software play for Microsoft. The model implemented by Xbox Live is where online gamers have a portal tied to their console and online game play with all the online titles they own is made available to them. It thus enables the gamers to take gaming to an increased social level. It aids in creating online gaming communities, Xbox Live Video giving them access to downloading video clips and in turn modeling the gaming industry to a more social level. The announcement of Microsoft s Live Anywhere service signifies a marked initiative to change the rules the gaming industry operates under. The service aims at creating cross platform gaming experiences, with head to head gaming across platforms such as the PC and the Xbox 360 and making mobile phones act as a personal passport to enter the virtual world of gaming. The mobile component of Live Anywhere will run on both Windows Mobile devices and other handsets that support Java and Brew, the user experience differing only slightly. It is also believed that gaming and DirectX have been driving forces to the 3D design of Windows Vista. Achievement points, a key aspect of Xbox Live play, are also set to be incorporated into PC games and Windows Vista. 9

11 To get traction, Microsoft needs to implement the pull strategy using Social Computing. Already having a presence in this domain with applications like MSN Spaces, instant messaging presence, the Live Anywhere program will further facilitate its development in this area. Microsoft has the required infrastructure and capabilities to create Live Anywhere into an ideal Social Computing model thus creating a strong market presence. The challenge will be doing this without losing the core gaming focus. Microsoft Positioned for Success Robbie Bach s plan to launch the console in 2005 seems to look perfect, which gave them a year to consolidate its position, before Sony came up with its product. According to Larry Probst, CEO of Electronic Arts, Microsoft got more of EA s development dollars- an equal amount for the first six months of the launch versus the PS3- because it went a year earlier. Microsoft seems poised for success with Microsoft with its Live Anywhere concept destined to extract the benefits of Social Computing in gaming, the model the gaming industry seems to be getting inclined into. This is where the core competency of Microsoft lies, and with an increase in the gaming consumers, it will attract more and more game developers to make new games, and this cycle will feed its growth in a cyclic manner as stated. With a core competency in provision of software and services, the Xbox seems to be creating a second pillar of Microsoft software, which would rule the home. TCS Recommendations Drive the key message Microsoft hopes to establish strong positions by targeting solutions aimed at certain sections of the market and eventually provide interconnection. The message that Microsoft is trying to convey needs to be driven with more intensity and should provide a meaningful connection between its offerings. The disconnected messages seem like a patchwork and it causes confusion amongst its partners and consumers. Mobile Component of Live Anywhere The mobile component of Live Anywhere will play an important role in the success of the Live Anywhere concept. There is a strong penetration of the telecommunication industry amongst the users. Microsoft needs to aim at having a pervasive presence across the mobile phone market. The key will lie in roping in mobile phone service providers, convincing them about the benefits in terms of added revenue and get the OEM handset manufacturers to have the portal pre-loaded and having the Live Anywhere platform supported on their handsets. Taking Social Computing to a Different Level It is important to realize the educational value provided by games, through which various skills of budding gamers can be enhanced. Microsoft needs to keep this in mind and promote its strategy to gain a wider base of users along these lines. There are various learning programs and forums for the youth where the importance of gaming for an overall development can be accentuated. Taking an example, TCS has initiated a unique platform called the TCS Ignite which aims at tapping the graduate science talent of India and aim at providing a learning experience that can provide effective transformation across multiple dimensions. Microsoft could be a part of various such forums that take place and help in developing talent through its games, and could develop potential game testers through this process. It serves as a win-win situation for all those involved. 10

12 D2C Model for Mobile Gaming The direct to consumer model could be promoted for mobile gaming, where the game publishers should be promoted to sell their games directly to the consumers. What it means is that consumers can have a better buying and game browsing experience and it could play an important role in the growth of the mobile component of gaming. Promotional offers Promotional offers such as free mobile phone service and/or handset discounts revolving around the purchase of the Xbox 360 or the Xbox Live arcade version and vice versa should be floated. This would involve a tie-up between Microsoft and handset manufacturers and service providers ensuring a win-win situation for all. Good Quality Gaming Experience on the Mobile Operators have been offering basic gaming features to its consumers, but it has only restricted consumer options, as the games have not been up to the mark in terms of quality and diversity. Microsoft s solution will generate revenues for the operator as it should provide a better quality experience and thus stands a good chance of driving significantly more game playing and purchase. This wave will surely help in the success of its Live Anywhere platform. On Game Advertisements Microsoft needs to plan its strategy whether it should allow advertising options on its Live Anywhere platform. The benefit would be added revenue from the advertisers; the benefit for the advertiser is implied in the potential target audience it could reach. From the customer s perspective one would not want to have advertisements into the games that the customers have already paid for. An option of reduced cost-connection services or game play extensions can be provided in return of an agreement to have advertisements on board. Drive Home the Key Message In terms of advertisements, Microsoft needs to make sure they drive home the point that how different its online service is from Sony s. An uneducated buyer figures out that a PS3 is more powerful than a Xbox 360, and both of them provide online services which puts the online service at a level playing field for both. In the eye of a common buyer, Microsoft charges for its online service and while Sony does not, which probably explains the higher cost of the Sony PS3. With this trend in his mind, he is more likely to go in for a Sony. Other than a few educated buyers, not many take that extra step to find out how different and beneficial Microsoft s online service would be compared to Sony s. TCS Role Tata Group The Tata Group comprises 96 operating companies in seven business sectors: information systems and communications; engineering; materials; services; energy; consumer products; and chemicals. The Tata Group is one of India's largest and most respected business conglomerates, with revenues in of $21.9 billion (Rs 967,229 million), the equivalent of about 2.8 per cent of the country's GDP, and a market capitalization of $55.7 billion. Tata companies together employ some 2,46,000 people. The Tata Group has operations in more than 54 countries across six continents, and its companies export products and services to 120 nations. Roots Corporation Limited (RCL) is a wholly-owned subsidiary of The Indian Hotels Company Limited (IHCL). It is under which the Tata group operates its Ginger Hotels which are built around a unique concept that provides facilities to meet the key needs of today's 11

13 traveler, at surprisingly affordable rates and have Xbox 360 consoles available for its occupants at every hotel of theirs. An association with Microsoft Xbox 360 already exists for the Tata Group, as its consumer electronics and durables chain, Croma provides retail services for the Xbox 360. Value by TCS Tata Consultancy Services (TCS) is one of the leading information technology companies in the world. With a workforce of over 83,000 professionals spread across more than 50 global delivery centers. TCS products and services help companies in various sectors effectively meet their business challenges. With technical expertise and employing a flexible approach to client relationships, TCS offers its clients: consulting, IT services, business process outsourcing, infrastructure outsourcing, and engineering and industrial services. TCS understands the vision of Microsoft in relation to the Xbox and with its pervasive geographical presence and deep understanding of the market dynamics across the world it would add significant value to help Microsoft achieve its goal. Considering the exponential growth of the Indian telecommunication sector which is expected to have 500 million subscribers by 2010, and the Internet percolation increasing amongst the masses, the Indian market needs to be tapped especially on the Live Anywhere front. This will in turn feed the growth of the Xbox 360 game console. TCS can help it grow in India and other select geographies like China, where its understanding of the market dynamics and industry requirements would be valuable. It would be providing services ranging right from managing The Xbox Live portal in select geographies and all the services that come along with it: from business process outsourcing to portal maintenance. Drawing upon the capabilities of other companies under the Tata group, solutions can be provided to which would aptly align with the Live Anywhere platform vision. Leveraging the capabilities of the Tata Group Tata Telecommunication and Information Networking The Tata group having a strong presence in the Indian Telecommunication sector and the Information and Networking sector, its capabilities can be leveraged. VSNL, which now belongs to the Tata group was the first Internet service provider in India and today provides services to over 600,000 customers in the country. It offers a range of hosting and co-location services out of its data centers. VSNL has deep percolation in the Indian market. Tata Teleservices Tata Teleservices (TTSL) spearheads the Tata Group's presence in the Indian telecom sector. TTSL pioneered the CDMA 3G1x technology platform in India. The company has established a robust and reliable telecom infrastructure that ensures quality in its services. It has partnered Motorola, Ericsson, Lucent and ECI Telecom to deploy a reliable and technologically advanced network. Tata Sky With the Xbox 360 console aiming to work as a set-top box for tuning in Internet-delivered TV, recording programs like a TiVo and downloading video on demand, Tata Sky s capabilities can be leveraged. Tata Sky offers viewers a variety of popular channels with state-of-the-art digital infrastructure and partners that include global leaders in digital technology, Tata Sky provides for hardware installation at subscribers' homes, as well as after-sales service through an extensive customer service network that provides complete customer care. Tata Elxsi Tata Elxsi s Visual Computing Labs (VCL) offers high-end animation expertise complemented by interactive programming skills to create stunningly sophisticated games. Its specialized services span both the creative as well as the technological areas involved in the creation of compelling games. VCL has the creative edge to meet the 12

14 challenges in the 3D animation world. At VCL right from game development and testing to provision of 3D animation and visual effects, would play a big role in game development for the Xbox 360. Consultancy for Six Sigma Status The cyclic behavior of the industry, surely affects the way Microsoft plans to run its business, impacting all the players in the food chain. It is very essential to efficiently plan timely operations. The decision to allocate the available resources to planning the behavior of the various players in the food chain at various instants of time is essential for optimzed outputs. TCS has the capability in providing consultancy services for efficient operation of the supply chain, and can help Microsoft achieve a Six Sigma status of operation. Increasing Customer Service Levels Customer service with regards to the issues of hardware and support, need a push up. An indication of the level of customer service for Microsoft is from the online and offline feedbacks they get from their customers. Considering not too many customers take the pain to write mails or any sort of feedback articulating about their experience, the feedback received is not a perfect indicator of the true levels of customer satisfaction attained. It is important to cater to the set of customers having hardware and support issues, and whose feedbacks have not been tracked. A solution to this situation is two-fold. Firstly it should be ensured that the supply chain and quality control of the consoles are made more efficient and the customer service centers are more efficient in handling customer issues.tcs being a leader in providing BPO services and with expert consultants onboard, it is well equipped to provide efficient solutions to improve the Supply chain/quality Control process further. Involvement of TCS With such a percolation of the Tata group in the telecommunication sector and the living rooms of Indian homes, the model with TCS at the center providing the software services and management leveraging the benefits from the companies of the Tata group seems to be the ideal scenario for Microsoft to increase its Xbox 360 presence in the Indian market. It can efficiently leverage the Live Anywhere concept to draw in more gamers and with its own consultancy services help Microsoft grow with its Xbox 360 in the Indian subcontinent. 13

15 About Hi-Tech Practice The Hi-Tech Practice focuses on the following segments: Semiconductor & Electronics, Hardware, Software & Services Companies. TCS has strong technology and innovation focus, technology alliances and key partnerships with the major technology companies. TCS comprehensive service lines such as the consulting, embedded and engineering make it an ideal partner for providing end-to-end solutions to the dynamic and highly innovative Hi Tech industry. Our Global Delivery Model provides certainty and reliability to our customers. All content / information present here is the exclusive property of Tata Consultancy Services Limited (TCS). The content / information contained here is correct at the time of publishing. No material from here may be copied, modified, reproduced, republished, uploaded, transmitted, posted or distributed in any form without prior written permission from TCS. Unauthorized use of the content / information appearing here may violate copyright, trademark and other applicable laws, and could result in criminal or civil penalties. Copyright 2007 Tata Consultancy Services Limited About Tata Consultancy Services (TCS) Tata Consultancy Services Limited is an IT services, business solutions and outsourcing organization that delivers real results to global businesses, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT and ITenabled services delivered through its unique Global Network Delivery Model, recognized as the benchmark of excellence in software development. A part of the Tata Group, India's largest industrial conglomerate, TCS has over 83,000 of the world's best trained IT consultants in 47 countries. The company generated consolidated revenues of US $2.97 billion for fiscal year ended 31 March 2006 and is listed on the National Stock Exchange and Bombay Stock Exchange in India. For more information, visit us at